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Second Quarter Closes and Post-Covid Life Emerges

The U.S. economy continued its dramatic coronavirus recovery in the first six months of 2021, thanks to effective Covid-19 vaccines putting out the pandemic’s figurative fire, massive monetary and fiscal accommodation, and its own fundamental resilience.  The S&P 500 ended the first half of the year at 4,298, a 14% increase from its close at the end of 2020, and the Dow Jones Industrial Average climbed a similar 13%.


The quarter ending June 30 marked both indexes’ fifth consecutive quarter of gains (the longest streak of gains since a nine-quarter stretch that lasted through 2017).  Yet, the economy continues to struggle with supply chain imbalances and a historic mismatch between the number of job openings available and continued high (though declining) unemployment. Many financial journalists and pundits continue to speculate on when these issues will clear.  To Charter Oak’s advisors, the key belief is that these issues will eventually clear.  It is always a matter of time.


We are currently amid an unprecedented experiment in both fiscal and monetary policy.   It is possible that coronavirus stimulus worked too well, causing inflation to accelerate as part of a long-term trend, or recent inflation could be merely a passing part of our post-Covid economy that will work itself out.  Regardless, recent statements by Federal Reserve Chair Powell indicate a clear awareness of inflationary risk and a readiness to act against it.


Inflation aside, the most important economic report of this whole six-month period showed that U.S. household net worth spiked 3.8% in the first quarter of 2021 (to $136.9 trillion) propelled by broad gains in the equity market and home prices.  Even more important is the fact that the ratio of household debt to assets continued to fall and is down close to where it was 50 years ago.


Consumers power this economy, and the consumer has rarely carried more manageable debt levels relative to disposable income (and has simply never been holding more cash) than she/he does today.  In June, the National Retail Foundation again raised its outlook, expecting retail sales to grow 10.5% to 13.5% (that is, $4.44 trillion to $4.56 trillion) year over year. Just this past month, retail giant Target raised its dividend by an impressive 32%.


On February 19, 2020 (the market's peak before the pandemic decline) the S&P 500 closed at 3,386. It then proceeded to decline 34% in 33 days, but if you bought the S&P 500 at that epic top and were still holding it on June 30, 2021, your total return with reinvested dividends has been close to 28%.   We have never seen a more vivid demonstration of investor Peter Lynch's statement:


“The real key to making money in stocks is not to get scared out of them.”



We at Charter Oak are long-term, goal-focused, planning-driven advisors.  We've found the best course is to formulate a financial plan, and to build portfolios, based on our client’s most important lifetime financial goals (and, importantly, not on a current view of the economy or the markets).


Since 1960, the S&P 500 Index has appreciated approximately 70 times and the cash dividend of the Index has gone up about 30 times.  Over the same period, the Consumer Price Index has increased by a factor of nine. At least historically, mainstream equities have functioned as an extremely efficient hedge against long-term inflation and a generator of real wealth over time.


We believe this is more likely to continue in the long run.   We believe that acting continuously on a rational plan, as distinctly opposed to reacting to current events, offers our clients the best chance for long-term success.   Simply stated: unless our client’s goals change, we see little reason to alter their financial plan.


And if a portfolio is well-suited to that plan, we don't often make significant changes to that, either.  We're convinced the most reliable way to capture long-term portfolio returns is to ride out their inevitable but ultimately temporary declines.  Finally, the primary benchmark we care about is the one indicating whether a client is on track to achieve their financial goals.


At Charter Oak, it is and always has been our pleasure to keep you from getting scared out of investing.  There is no greater success than helping our clients stay focused on their long-term financial plan, no greater privilege than helping our clients live the life they imagine.  We wish you a wonderful summer full of time reuniting with friends and family after months of separation.